Disadvantages of Zero-Base Budgeting

The main DOWNSIDE of zero-base budgeting is the exceptionally high level of effort required to investigate and document department activities; this is a difficult task even once a YEAR, which causes some entities to only use the procedure once every few years, or when there are significant changes within the organization. Another alternative is to require the use of zero-base budgeting on a rolling basis through different parts of a company over several years, so that management can deal with fewer such reviews per year. Other drawbacks are:

• Bureaucracy. Creating a zero-base budget from the ground up on a continuing basis CALLS for an enormous amount of analysis, meetings, and reports, all of which requires additional staff to manage the process.
• Gamesmanship. Some managers may attempt to skew their budget reports to concentrate expenditures under the most vital activities, thereby ensuring that their budgets will not be reduced.
• Intangible justifications. It can be difficult to determine or justify expenditure levels for areas of a business that do not produce “concrete,” tangible results. For example, what is the correct amount of MARKETING EXPENSE, and how much should be invested in research and development activities?
• Managerial time. The operational review mandated by zero-base budgeting requires a significant amount of management time.
• Training. Managers require significant training in the zero-base budgeting process, which further increases the time required each year.
• Update speed. The extra effort required to create a zero-base budget makes it even less likely that the management team will revise the budget on a continuous basis to make it more relevant to the competitive situation.

Disadvantages of Zero-Base Budgeting

The main downside of zero-base budgeting is the exceptionally high level of effort required to investigate and document department activities; this is a difficult task even once a year, which causes some entities to only use the procedure once every few years, or when there are significant changes within the organization. Another alternative is to require the use of zero-base budgeting on a rolling basis through different parts of a company over several years, so that management can deal with fewer such reviews per year. Other drawbacks are: